Judge Ends 4-year-old Suit By Dissolving Partnerships

September 04, 1985|by GAY ELWELL, The Morning Call

Partnerships that were the focus of a four-year-old lawsuit have been ordered dissolved by Northampton County Judge Robert A. Freedberg, who appointed a receiver to oversee the sale of real estate holdings of corporations formed by the partnerships.

In a 44-page ruling issued by the judge on Friday, partnerships formed by Easton attorney Dominick Lockwood and Jacob and Asher Seip are ordered dissolved. The judge appointed Bangor attorney Alan B. McFall as receiver, responsible for selling the real estate and equitably distributing the proceeds.

Lockwood, the victor in the proceeding, is ordered, however, to account for $15,000 advanced by the Seips for the acquisition of a real estate franchise, and for $600 in checks written by him between January 1977 and February 1981 on partnership accounts.

The real estate involved includes the 25th Street Shopping Center and Gateway Terrace Apartments in Palmer Township, Easton Manor Apartments in Easton, the Howland Apartments in Wilson, and the St. Lawrence Apartments in St. Lawrence, near Reading.

Lockwood had originally sought the dissolution of the partnerships and appointment of a receiver in 1981, asserting in a civil suit that the Seips had diverted partnership funds into their own accounts.

The Seips have initiated countersuits against Lockwood, saying among other things that he tricked them into investing in a failing real estate business and bilked them of funds.

Noting that the appointment of a receiver is a serious matter, and "is not lightly undertaken," Judge Freedberg said, "In light of the fact that the parties in the present manner bitterly dispute their ownership interest in this investment real estate and the fact that the individual defendants have been reaping the benefits of director's salaries and management fees while the plaintiff has been ousted from partaking in his interest in the property, we believe that the only way to ensure the equitable distribution of the partnership assets would be to appoint a receiver.

"Further, the long duration of this controversy shows that the parties will not be able to proceed with the dissolution on their own. Given this situation, we can foresee only constant appearances before this court concerning the sale and distribution of the partnership assets should we permit the individual partners to conduct the sale of said properties," the judge said.

Legal title to the land is not in dispute, the judge notes. "However, 'the kernel of the controversy' is whether or not the parties created partnerships and whether or not these partnerships are the beneficial owners of the real estate involved in the litigation."

The Seips claimed that Lockwoodshould receive no relief, since there is nothing in writing to substantiate the partnerships. However, Judge Freedberg said, "We do not believe that the Statute of Frauds applies to the unique situation before us. Since we have already determined that the parties intended the partnerships to be the real owners of the investment properties and that the corporations were meant only to act as straw parties for the partnerships, holding legal title to the properties and nothing more, the Statute should not serve to bar the relief presently sought by (Lockwood).

"No transfer of real estate transpired between the corporations and the partnerships. Lockwood and the Seips merely acted in the corporate form to acquire land for the partnerships. Hence, the partnerships were always the beneficial owners of the real estate in issue. For this reason, the property to which the corporations hold legal title must be sold and the proceeds deposited to their respective partnership accounts."

Lockwood and the Seips will each be entitled to one-third of the proceeds from the sale of each of the properties, with the exception of the Howland Apartments. In that case, Lockwood holds a 40-percent interest, and so shall receive a 40-percent share of the proceeds.

Lockwood is also entitled to $10,568 he spent for law books and bar association dues as part of his interest in the partnership, since "even Jacob Seip admitted (Lockwood's) law practice was to serve primarily their real estate business."

Starting in 1969, Lockwood and the Seips "collaborated in acquiring the first of what was to become a string of income producing properties," Gateway Terrace.

In each case, they used corporations to take title to the properties in order to raise money and reduce individual liability. Those corporations maintained inactive status, and the partners declared profits or losses from the holdings on their individual income tax returns.

The three men agreed that they would form a corporation to hold title to the Gateway property, and contribute equally to seed funding for the project. Eventually they formed two corporations, Gateway Terrace Corp. and First Pennsylvania National Land and Development Corp. to purchase and finance the property.